During covid, the government increased federal unemployment benefits to help those who lost jobs due to the pandemic or those who worked in service industries that may not have felt comfortable going back to work because of the virus. However, since the end of lockdowns and the restart of the economy this has been creating a negative production externality for many consumers. For example, the other week my friend locked her keys in her car and we called AAA to help us out. AAA is a company that provides 24/7 roadside assistance and advertises themselves on their prompt service. However, they have had issues with staffing because of these unemployment benefits and many former employees are more content with their current benefits than their previous salaries. Due to this, we had to wait 5 hours in the middle of the night, the night before the first day of classes, for a tow truck that never came. And apparently this has been an issue for AAA since the end of June, as this article shows.
We experienced a negative production externality because of the external cost of the unemployment benefits that has not yet been addressed by AAA. And while the federal unemployment benefits are coming to an end soon, employees may not necessarily return to their previous jobs, since many enjoyed the changes to their work environments that they experienced during covid. To address this issue, AAA should pay attention to the external cost and either charge consumers more in order to reduce the amount of people using their service or pay their employees a higher percentage of their revenues to entice them to come back and better serve their remaining customers.
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